Will American, Azul, And GOL, Form A Throuple? What About United?

Earlier, I covered how Azul filed for Chapter 11 bankruptcy protection. On the surface, this isn’t a huge deal, since operations should continue as usual, and this is just a balance sheet exercise.

However, there’s one thing that piqued my interest — American Airlines is supporting the restructuring (financially), though it’s not entirely clear what this will look like. This is fascinating, because the two airlines don’t currently have a partnership, or anything to do with one another, really.

I want to talk a bit more about how this could all play out. When it comes to the evolution of partnerships, I think Latin America could be the most interesting region in the world at the moment.

American & United struggle with a Latin America strategy

Historically, American was by far the strongest of the “big three” US carriers in Latin America. Not only did the airline have a massive network in Latin America, but the company also partnered with LATAM, the region’s largest carrier.

That all changed in 2019, when Delta announced it would invest in LATAM. Since then, LATAM has left the oneworld alliance, and has formed a joint venture with Delta. While Delta arguably overpaid for LATAM, this was still a big win for Delta in terms of its equity investment and joint venture strategy.

Meanwhile American and United have largely been going at it alone in Latin America, trying to figure out what to do, but for different reasons.

In the case of American, the airline clearly wants partnerships in Latin America. American has even invested in Brazil’s GOL, with an ownership stake of just over 5%. But of course GOL only flies 737s and doesn’t have business class, so it’s hardly a full replacement for what was lost with LATAM. It’s better than nothing, though.

In the case of United, the airline partners with mega carrier Avianca (they have mutual Star Alliance membership), and also has a partnership with Brazil’s Azul. However, neither of these partnerships are particularly strong:

• Avianca has a huge Latin America network, but United doesn’t do much to feed traffic onto Avianca, and there’s no joint venture between the airlines
• United’s partnership with Azul has to be one of the most casual in the world; there’s frequent flyer reciprocity, but virtually no coordination otherwise, and barely even overlap with airports served

Azul, GOL, and Avianca, are all in complicated situations

On the Latin America front, I imagine we’re going to see some moves. For one, it’s worth emphasizing the challenging situations these airlines are in. Azul and GOL are both in Chapter 11 bankruptcy, with Azul having just entered, and GOL planning on emerging in the coming weeks.

Azul and GOL were actually pursuing a merger recently, but seemingly nothing could be worked out before Azul filed for bankruptcy.

While Avianca isn’t directly involved here, I think it’s still worth bringing up the airline when it coms to discussing future possible partnerships and alliances. That’s because Avianca and GOL are both majority owned by Abra Group. So even though the airlines have limited cooperation, they do have the same owners. On top of that, GOL has several other shareholders, including American, Air France-KLM, and more.

So of course an owner can decide that it’s best to run two brands totally independently. At the same time, if there are opportunities for a bigger deal, that has to be considered.

How I see these airline partnerships playing out

Like I said, I think we’re going to see some big things happen here. I could be totally wrong, but let me share how I’m reading the tea leaves.

I actually don’t think United is that interested in a lot of Latin America growth. If the airline wanted to form closer partnerships in Latin America, it has had every opportunity to do that with Avianca, which is the other mega carrier in Latin America (beyond LATAM). Now, that’s not to say United might not eventually be forced to do something for competitive reasons (if American figures out a strategy as well), but I just don’t think it’s one of United’s business priorities.

Meanwhile it’s clear that American has been trying to figure out a good Latin America strategy since losing LATAM, but has struggled. After all, options are limited — Avianca and LATAM are out of the picture, and the other players in the market don’t have much geographical breadth, and/or aren’t very global.

We’ve seen American invest in GOL, and now it sounds like American will also invest in Azul. I imagine that the way this plays out could look quite different depending on whether or not Azul and GOL ultimately merge.

It’s worth mentioning that United is also reportedly supporting Azul’s restructuring, though it’s not clear to what degree. On the surface that’s a bit more obvious, since the two airlines at least partner.There’s nothing preventing Azul from partnering with both American and United.

In terms of partnerships, Azul’s current issue is that its primary hub is in Viracopos (VCP), rather than in Sao Paulo Guarulhos (GRU). The airport is intended to serve the same region, but it’s just not an ideal setup, since it’s an airport that many people don’t think to fly to. Yes, Azul has some flights out of Sao Paulo Guarulhos, but if the goal is actually to have an integrated partnership that adds value, there needs to be more co-location.

Could we see a US airline try to make Viracopos more relevant to international travelers, or could we see Azul shift some more service to Sao Paulo? The issue is that Guarulhos Airport doesn’t have much space, so that could be challenging.

I know some people will say “well American could just connect people onto Azul flights to Brazil at US gateways.” The issue with that concept is that there would be limited upside for American with such an arrangement. Sure, maybe with a joint venture that could work, but it needs to be part of a larger strategy.

So I don’t know what all of this will end up looking like, but I’m mighty fascinated, as there are so many moving parts, and so many competing interests.

Bottom line

The airline dynamics in Latin America are about to get a lot more interesting, as we’re seeing American express interest in Azul, in addition to having already invested in GOL. On top of that, United already has a partnership with Azul and Avianca, with Avianca having the same primary owner as GOL. Complicating this even further is that Azul and GOL have been looking at a merger in recent times.

It’s anyone’s guess how this all plays out, but I imagine it’s going to be an interesting few years for aviation in South America….

How do you see this Latin America aviation situation playing out?